Monthly Archives: October 2010

In Mekere Morauta’s Contract in 2000 with Highlands Pacific, the National Governenment reserved the right to take up to 30% equity in the Ramu Nickel project once operational. However in 2006, Sir Michael Somare in his wisdom amended the agreement this time with the Chinese Metallurgical Group Corporation (MCC), to never take up that option so that we could stay with the whopping 6.3% equity.

In addition, Mekere’s contract had a two tier tax scheme to give an incentive for a developer. In 2000 the nickel price was suppressed – at about $7000 per tonne – the contract provided for a corporate tax rate of about 15% for the first 5% profit and then for all profit, after that tax would be at the normal rate of 30%.

Somare’s beautiful contract work removed that tax clause and replaced it with a 10 year tax holiday to kick in whenever MCC feels the need to be generous. On 2000 prices we could estimate that this masterstroke “amendment” cost PNG K162 Million but now that the nickel price is about US$23,000 per tonne, the mind boggles at how much was really given away.

Further more, there is a nice transfer pricing clause in the new contract, which was not even in Mekere’s – the new clause states that the parties recognise that MCC will sell nickel to related companies in the Chinese domestic market. Full stop. It doesn’t say “at international market price”. So if you are a buyer in new York who is willing to pay $23,000 per tonne and one of MCC’s brother or sister companies in China want to pay $7000 a tonne – MCC can just sell to the one in China and the parent company gets $23,000 worth of benefits per tonne for only $7000. Which all means that MCC would never have to declare a profit or tax for that matter, ever and for our measly 6.3% we will undoubtedly never get a declared dividend.

With all our new projects coming online in the next 10 years, have we or will we learn anything from the Ok Tedi experience? Why do you think Ramu Nico is having such a hard time with the landowners. Why do you think we lost Bougainville Copper Limited (BCL)?

The world’s leading business analysts says controversial amendments to Papua New Guinea’s Environment Act have back fired on the government and major resource companies.

The amendments were pushed through Parliament in May to try and protect major resource projects from legal challenges and provide investors with greater security, but they have had exactly the opposite impact as the changes have incensed local people who are now defending their rights through direct action.

The Environment Act amendments have ‘destabilised PNG investment environment’ says D&B, the world’s leading source of commercial information and insight on businesses, in its November 2010 Country Riskline Report

D&B says the amendments to the Environment Act 2000, which give the director of the Department of Environment the authority to approve investments with a potential environmental impact, and his decisions “may not be challenged or reviewed in any court or tribunal”, were aimed at streamlining the investment approvals process and protecting foreign investors from liability for environemntal damage.

But, “this has proved unpopular with PNG’s traditional landowners, whose long-held rights to sue for compensation for environmental damage have effectively been removed”.

This, says B&B will lead to more conflict on the ground as local people will continually challenge the government’s legal authority to grant approval for resource extraction projects without the consensus of landowners.

D&B point to recent conflict that has hampered progress with Exxon-Mobil’s LNG project as evidence that “underlines the high degree of political risk that will continue to hamper the progress of inward investment in PNG”.

BARRICK Gold Corp, operator of the Porgera Gold mine in Papua New Guinea, and other Canadian mining companies have been implicated for their involvement in alleged “sustained and flagrant violation of environmental protection” causing investors to withdraw their shares.

The Montreal based Canadian online news The Gazette reported last Friday “heavy metal pollution, especially mercury buildup from Barrick’s Porgera mine in Papua New Guinea, was an egregious case in point”.

The revelation came about last week when Norwegian government decided to sell off its shares in Barrick, saying: “Under Norwegian rules, the public pension fund is not allowed to invest in companies that in the judgment of Norwegian council on ethics entail an unacceptable risk of the fund contributing to environmental damages.”

Two years ago, according to the online news, the Norwegian minister for finance Kristin Halvorsen ordered Norway’s government pension fund to divest itself a C$200 million plus investment in Barrick.

However, a senior staff of Barrick in Porgera mine yesterday denied the report, saying: “Studies undertaken by the Commonwealth scientific and industrial research organisation found no evidence of anomalously high inputs of dissolved inorganic mercury from any of the inflows into the Lake Murray (including Strickland River), but rather an efficient process of the methylation and biomagnifications of mercury naturally occurring low levels in water and sediments up through the food web which occurs naturally.”

The Gazette further reported that yet this week, there was the Canadian mining industry working overtime to try to contain the damages from a 2009 study it had commissioned and tried to keep buried.”

The study which the industry said was for internal consumption only, found that Canadian mining companies are implicated in four times as many environmental and human rights violation as mining companies from other countries.

Canadian companies accounted for nearly two-thirds of the 171 “high-profile” environmental and human-rights violations between 1999 and 2009, the study found.

One of the joint venture partners in the just-commissioned Hidden Valley gold mine in Morobe province has admitted that there are “high-than-expected” sediment levels in the Watut River.

South African company Harmony Gold Mining, through its chief executive officer Graham Briggs, made the announcement in a letter to stakeholders – published on its website on Tuesday this week.

Briggs admitted that this was causing “serious concern within and outside the company” and a change in the course of a section of the lower Watut River, resulting in die-back of vegetation.

The admission came about as Morobe Mining Joint Ventures, made up of Harmony and Australian partner Newcrest, started paying compensation to affected villagers along the Watut River and as Bulolo MP Sam Basil called on villagers not to accept the payouts.

“The higher-than-expected sediment impacts in the Watut River in PNG have given rise to serious concern within and outside the company,” Briggs said.

“The mine’s environmental impact statement (EIS) predicted sediment loads in the Watut River during construction but, as it has taken longer than expected to reach hard rock at the mine which will be used to construct the interim waste dumps, the construction of stable waste dumps has been delayed resulting in a continued high sediment load in the Watut River.

“Construction of the interim waste dumps has been prioritised, with specific resources allocated to the project to ensure speedy progress.

“This will reduce the sediment load in the river, and allow the current sedimentation to flush out.

“In addition, mining activities which contributed to the increased sediment load have been stopped.

“The MMJV commissioned further impact assessments so that we could better understand the impact of these sediment loads on the river.

“These studies show that the increased sediment load in the Watut River (of which the mine is one source) has resulted in a change in the course of a section of the lower Watut River, and a die-back of vegetation in that area as a result of flooding.

“Although these changes in the river course occur naturally over time, the mine’s contribution to the sediment load in the lower Watut River has speeded up this process.

“The MMJV has committed to expanding its monitoring programme to quantify the impacts coming from the mine and other sources, taking remedial action wherever possible, and working with the government to assess fair compensation for those affected.”

Hidden Valley mine was officially commissioned on Sept 29 by Governor General Sir Paulias Matane at a ceremony which also marked its opening.

The new gold project is a joint venture between South African miner Harmony Gold (70%) and Newcrest Mining Ltd (30%), the largest gold miner in Asia-Pacific.

MMJV plans to invest a total of K1.25 billion over a 10-year period, with the outlay to go towards wages and salaries (K800 million), royalty payments (K200m) and revenue for the provincial and national government (K250m).

The Hidden Valley mine is projected to produce an estimated 2.9 million ounces of gold.

Harmony Gold and Newcrest Mining, owners of the Hidden Valley mine in Morobe Province, Papua New Guinea, have proudly announced one-off ex gratia compensation payments of more than K2.6 million to people along the Watut River who are environmentally affected and displaced by the Hiden Valley mine.

Wow! K2.6 million.

Sounds great doesn’t it?

Except there were over 2,000 separate compensation claims made for washed away gardens, lost food trees, damaged homes and forest die-back.

So each family that has suffered loss is receiving, on average, just K 1,200!!

The miners say the payments are a ‘voluntarily committment’ as if somehow they are being kindly or charitable when the fact is they are legally and morally responsible for the damage to property and gardens throughout the river system which has been traced back to increased sedimentation and flooding caused by the Hidden Valley mine construction period.

Local MP Sam Basil has wisely advised landowners not to sign statutory declarations that are being pushed at them by the mine companies when they receive their payments as these documents could affect their rights to much higher compensation payments through the courts.

Amnesty International is demanding accountability and justice for the displaced people of Porgera in Papua New Guinea and asking why Barrick Gold is blatantly ignoring violent and forced illegal evictions near its gold mine.

Between April and July of 2009, police raided villages around the Porgera mine, violently and illegally evicting people from their homes without warning, says Amnesty. The police threatened and beat the men. They kicked out young children, pregnant women and the elderly.

The Porgera gold mine is operated and 95 percent owned by subsidiaries of Barrick Gold Corporation, the largest gold mining company in the world.

Amnesty says that at the time of the police action, Barrick was providing support to the police force on the condition that they respect national law and international human rights standards. This condition was clearly broken, but Barrick has continued to provide support despite the human rights violations.

The displaced citizens were left with nothing. The police burned down 130 buildings, destroyed their belongings and killed their cattle. No alternative housing has been provided to them by the government. Many families from the area now depend on their relatives for shelter and food.

Amnesty says, not only has Barrick unconscionably turned its back on the Porgera families, it still supplies the police with accommodations, food and fuel.

Barrick has the responsibility and obligation to report these abuses to the Papua New Guinean authorities and urge an investigation. It must not profit at the expense of the Porgera villagers. The displaced people of Porgera have the rights to justice and to receive redress for the harm they have suffered.

Over the objections of two judges, the 9th Circuit Court in San Francisco, USA, on Tuesday asked a judge to “explore the possibility of mediation” for a lawsuit accusing mining company Rio Tinto of inciting a 10-year civil war on the island of Bougainville, Papua New Guinea.

An 11-judge panel in San Francisco sent the human-rights case to 9th Circuit Judge Edward Leavy for possible mediation. The panel gave him 28 days to decide if mediation should proceed or if the case should return to the full court.

Bougainville residents accuse Rio Tinto’s branches in London and Melbourne of damaging their environment and sparking a bitter civil war. The corporation had mined copper in the village of Panguna in Bougainville since 1972.

Judges Andrew Kleinfeld and Consuelo Callahan disagreed with the majority’s decision to send the case to a mediator. “We have not yet decided whether we have jurisdiction over this dispute,” Kleinfeld wrote. “I very much doubt that we do. I suspect that we lack jurisdiction both because the case involves a political question and because we lack subject matter jurisdiction on account of extraterritoriality.”

The Papua New Guinea government allegedly blockaded the island, causing thousands of deaths and the violent civil war, which ended in 1999. Rio Tinto is also accused of participating with the Papua New Guinea government in war crimes.

“We are told that New Zealand mediated a peace agreement, under which Bougainville now enjoys some form of autonomy from the Papua New Guinea government as the ‘Autonomous Region of Bougainville,'” Kleinfeld wrote.

Named plaintiffs include Alexis Sarei, who lived in California when the complaint was filed but now lives in Bougainville as a member of its parliament. Sarei said he and other Bougainville residents were victimized by Rio Tinto and the government through violence and threats of violence, and by pollution from Rio Tinto’s mine in Bougainville.

“The claims are by Papua New Guineans against a British-Australian company for wrongs committed in Papua New Guinea,” Kleinfeld wrote. “Although Rio Tinto has operations in many countries, including the United States, and Sarei lived in the United States as a resident alien when the complaint was filed, nothing done by Americans or in America, is at issue.”

Judge Stephen Reinhardt responded to the dissenting opinions by writing, “If the mediation succeeds, we will simply have helped to resolve a complex legal dispute of great importance to the various litigants by means of a peaceful settlement rather than through extended litigation.”

The 9th Circuit has already ruled in December 2008, that U.S. courts might not be the right venue for the dispute. Judge Callahan, like Kleinfeld, questioned whether referring the case to mediation “is appropriate at this juncture.”